Get Time On Your Side: Late Retirement Planning Strategies

If you’re feeling behind when it comes to retirement savings, you’re not alone. A surprising 70% of Americans are either falling short or don’t know where they stand.1 If you find yourself in this predicament, it’s time to stop worrying and take actionable steps. We’ve gathered a few tips that can help you build a respectable fund to salvage your retirement:

• Spend less, save more. As simple as it sounds, it may not be an easy task. Not only do we tend to overspend on items we think we need, but we also spend our money before we’ve even earned it. Review your financial statements and reevaluate what you’re spending on a monthly basis. By seeking out avoidable expenses and cutting them out, you’ll gain more than you lose. You’ll come to find that these little savings will add up over time and can contribute significantly to your retirement plan.
• Work longer. This may be not be ideal for everyone, but working longer can be a tactical way to improve your retirement security. Not only does staying in the workforce mean keeping your earnings and benefits (medical coverage and continued contributions to retirement accounts), but you can expect fatter checks from Social Security every year that you hold off on claiming. Waiting until age 70 can get you a boost of an extra 8% per year.2
• Downsize. Chances are you grew up dreaming of having a large home with all of the bells and whistles. But as you head into your older years, living a simple and modest lifestyle may more suitable. Choosing to downsize your home by purchasing a smaller and less expensive home can offer many financial and health benefits. Your mortgage payments, maintenance, and utility costs could help put more money back into your pockets, and downsizing could also give you a home with greater accessibility.

Regardless of where you are in life, you can still make up for lost time.

Alternative Funding Strategies for Long-Term Care

As we get older and become frailer, we may find ourselves needing help with everyday activities that’s as simple as getting dressed, eating, or getting in and out of bed. Even if we’re healthy, accidents may necessitate assistance with such activities. This assistance is called long-term care (LTC) and can be provided at home, in an assisted living facility, and in nursing homes. But LTC services aren’t cheap. The average annual rate for nursing home care (semi-private room) is $88,348, and costs continue to surge.1 While having a long-term care insurance (LTCI) policy may be the best option to cover the costs, it may not be feasible for everyone. Fortunately, there are other ways you can fund LTC:

1. Annuities. An annuity combined with LTC benefits can deliver a lifetime income stream that increases in the event of an LTC need for additional financial protection.2
2. Life Insurance. A whole, term, or universal life insurance policy can all be converted into a LTC benefit account. During this conversion, the policy ownership is transferred to an entity that acts as a benefits administrator, who assumes all responsibility for paying the monthly premiums.3
3. Health Savings Account (HSA). You can tap into HSA assets to pay for future LTC costs. Funds in an HSA rolls over year to year and withdrawals are tax-free if used for qualified healthcare expenses, including LTC and LTCI premiums.4
4. VA Benefits. If you’re a veteran or spouse to one, there are many different benefits programs available through the U.S. Department of Veterans Affairs. Veterans and their spouses are entitled to receive financial aid known as the Veterans Affairs Aid and Attendance Pension Benefit or A&A benefit, which can be used to pay for LTC.5
5. Medicaid. Under the reality that many Americans are simply living longer, this strategy becomes more viable the closer you are to running out of money. The government assesses income and asset levels when deciding who qualifies, so once total assets are low enough, Medicaid will kick in. However, it should be noted that private insurance will likely provide a better quality of life.6

The expenses of LTC may be reality for many of us in the future, but there are a multitude of options. It’s never too early or too late to think about LTC, so make sure to include it as part of your retirement plan.

Build Tax-Free Income For Retirement

If there’s one thing almost everyone can agree on, it’s not wanting to pay taxes. After all, who wants to give up their hard-earned money to the government? The retirement savings gap is a multifaceted issue for many working people. With many challenges workers face, it’s easy to forget about taxes when it comes to saving for retirement. If you’re planning for retirement or nearing retirement, minimizing taxes is essential to a successful retirement plan. Here are three ways you can potentially accumulate tax-free income in retirement:

1. Permanent life insurance. This is a wonderful tool that offers you the ability to transfer your assets tax-free (both income and estate) to beneficiaries and also build up tax-deferred growth of cash inside the policy.
2. Health Savings Account (HSA). They’re unique for their triple-tax advantage: contributions are tax deductible, funds grow tax-free, and withdrawals are also tax-free, if used properly.
3. Roth IRA. After age 59 ½ and as long as you’ve had the account for at least five years, earnings grow tax-free and you can withdraw contributions at any time without tax or penalty.

Most Americans will enter their golden years with less money than they need, so it’s wise to find ways to minimize or avoid the tax bite. Through thoughtful planning and a sound strategy, you can keep more of your money.

Boost Your Savings Goals with Tax Diversification Strategies

After working hard all your life and planning diligently to achieve financial independence, the last thing you want is having to fork over a large percentage of your income to the IRS. Even when you’ve left the workforce, taxes will follow you into retirement. Fortunately, there are strategies that enable you to create tax diversification to help you maximize cash flow and minimize future tax obligations in retirement:

 

  • Contribute to a Roth IRA or 401(k). A Roth plan offers an opportunity to create a tax-free income source in retirement with its tax-free investment growth and tax-free withdrawals. To qualify, you would need to have held your Roth for five years or longer and you’ve reached age 59 ½ at the time of withdrawals. Though Roth IRAs and Roth 401(k)s are similar, the differences lie in their annual contribution limits, elibility criteria, and whether or not you’ll need to take required minimum distributions (RMDs).1 Work with us to weigh the pros and cons of each and we’ll come up with what’s best for your situation.
  • Convert traditional IRA savings to a Roth IRA. You can contribute to a traditional IRA regardless of your income; however, you won’t be eligible for a Roth IRA if you earn too much. The workaround, known as a “backdoor IRA,” works by funding a traditional IRA and then converting it into a Roth. The tradeoff–you’ll have to pay income tax on the amount you’re converting. The upside is, once you pay those taxes, any future growth within the Roth will be tax-free so you’ll be able to take withdrawals without paying taxes in the future.2 Under the new SECURE Act, this strategy is now even more beneficial to you and your heirs. In the past, inheritors of IRAs had the ability to take distributions over the course of their lifetimes in order to minimize the tax hit and save larger withdrawls for their retirement. With the elimination of the “stretch IRA” requiring beneficiaries to deplete their inherited IRAs within 10 years, Roth conversions can be more attractive as it could reduce or eliminate a significant tax bill for your future heirs.
  • Contribute to taxable accounts. Using a combination of pretax, Roth, and taxable accounts can offer you added flexibility in retirement. A taxable account is any type of investment offered by a brokerage, such as stocks, bonds, and mutual funds. With taxable accounts, you’re only taxed on the gains portion of the account. And the great benefits that these offer are fewer restrictions and more control allowing you to withdraw at any time and for any reason without penalty.3

 

Once retired, many of us will have less income than we had during our years of labor; thus, tax diversification is essential to help your investments go further. In order to create this among your investments, planning needs to begin early.

How the SECURE Act May Impact Your Retirement

The retirement landscape is constantly in flux as Americans adapt to the ever-changing financial environment. On December 20, 2019, President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as an effort to reshape and modernize our country’s retirement system. With most of its provisions effective this year, here are some key influencing factors that this new legislation could have on your retirement:1

• Inherited IRA distributions must be taken within 10 years. Prior to 2020, if you inherited an IRA or 401(k), you could “stretch” your distributions over your lifetime. Under the new law, “stretch” IRAs now loses its flexibility and are required to be withdrawn within 10 years following the death of the account holder.
• Required minimum distributions (RMDs) age increased to 72 from 70 ½, effective to those reaching age 70 ½ after December 31, 2019. Americans are working longer and can now defer withdrawing until age 72. If you turned 70 ½ last year and have already began withdrawals, the new rule does not impact you.
• No more age restrictions on IRA contributions. With Americans living longer and working past the traditional retirement age, they’re now able to contribute indefinitely. This means you can continue contributing to your traditional IRA past age 70 ½ as long as you’re still earning income.
• Long-term part-time workers can now participate in 401(k) plans. The new act expands access allowing part-timers who have worked 500 hours at the job over three consecutive years to be participants in 401(k) plans.

The SECURE Act is widely considered to be the biggest set of retirement reforms in more than a decade. As rules on retirement changes, your approach to retirement planning should too. We’re a team of professionals dedicated to client results.

Why Even Single People Need Life Insurance

Life insurance isn’t just for those married with children, single adults without children can benefit from it, too. When you’re single, healthy, and childless, a life insurance policy is probably the last thing on your mind. You might think that buying coverage is just another unnecessary expense; however, there are plenty good reasons why it could make sense for you:

• You have cosigned debts. While it’s a fact that federal student loans are discharged in the event of the borrower’s death, it’s not the case with private student loans—especially if you have cosigners. This applies to other cosigned debts such as mortgages, car loans, or credit cards. Your cosigners will bear the financial responsibilities that could be covered with the proceeds from a life insurance policy.
• You own a business with a partner. Life insurance can be the cornerstone of a business’s succession plan. In your absence, it can ensure a smooth transition and increase the longevity of the business you’ve worked hard to build.
• You want to leave a legacy. At some point, you may want children or you may end up caring for your parents, grandparents, or non-biological children. If you name them as your beneficiaries, the policy could help them cover everyday expenses if you were no longer around. You could also continue giving and provide a lasting legacy by naming your favorite charity as your beneficiary.

Life is unpredictable and has a way of changing fast. Life insurance is about protecting what’s important to us. We’re all leaving someone behind, and burdening loved ones with financial liabilities is probably the last thing we’d want to leave them with. Whether you’re single or not, chances are that you may relate with at least one of the scenarios above.